Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Kibaran Resources' BFS Places Epanko Graphite On Production Fast Lane

Kibaran Resources (ASX:KNL) has completed a Bankable Feasibility Study (NYSE:BFS) highlighting the attractive economics of its low cost Epanko Graphite Project in Tanzania.

The BFS is based on maiden Proved and Probable Ore reserves of 10.9 million tonnes at 8.6% total graphitic content (NYSEMKT:TGC).

Kibaran is primed to not only be the first graphite producer in the country since 1995 but also one of the first companies in its listed peer group to do so.

The BFS confirmed the viability of a conventional open cut mine and conventional flotation processing plant. Key metrics include:

- Pre-tax NPV10 of US$197.4 million;
- Pre-tax IRR of 41.2%;
- Capital Expenditure of US$77.5 million;
- Annual EBITDA of US$33.6 million for 15 years;
- Mine life of 25 years; and
- Strip ratio 1:1 (LOM).

The project will produce 40,000 tonnes per annum of high grade graphite flake concentrate for the first 15 years. This is supported by existing offtake and sales agreements.

All plant, associated equipment and infrastructure have been designed to Australian standards and can accommodate an upgrade in production, in line with future increased global demand.

In addition, the Mining Licence has been granted with environmental approvals in place.

Debt financing discussions have commenced.

Andrew Spinks, managing director, commented:

"Completion of the BFS is a significant milestone for our company and shareholders. The study is based on a realistic development strategy and supported by strategic partnerships in European markets.

"The positive BFS result enables the company to advance Epanko to production and in parallel further progress its second 100% owned graphite project at Merelani East and advance the strategic downstream value add opportunities we have announced to date.

"The milestone places the company in an enviable position, as it will provide access to further strategic partnerships in the European, Japan and US markets.

"The emerging battery market will have a significant positive impact on our future graphite sales, given our current sales agreements are solely based on the traditional refractory and expandable markets.

"The next few months is an exciting time as we deliver on our specific milestones for the broader development strategy for the company."

First production will commence 17 months from the completion of project financing.

Bankable Feasibility Study

The BFS was completed by GR Engineering Services (ASX:GNG) based on the upgraded Resource estimate of 23.3 million tonnes at 9.4%TGC and outstanding results from the metallurgical test work.

This includes a maiden Proved and Probable Ore reserves of 10.9 million tonnes at 8.6%TGC.

It envisions a 440,000 tonne per annum (tpa) flotation processing plant treating predominantly oxide ore and producing 40,000tpa of graphite concentrate.

This is capable of expansion to meet future increases in demand for premium quality large flake graphite.

Mining will be from the Eastern and Western deposits located within 1 kilometre of the ROM pad.

At both deposits there is a substantial Inferred Resource that is a continuation of the Measured and Indicated Resource that is not used in the study.

Capex of US$77.5 million includes all pre-development and preproduction expenditure, first fill consumables, insurance spares and contingency.

Life-of-mine project FOB cash operating costs are forecast to be US$570 per tonne concentrate, before the payment of a 3% royalty and taxes to the Government of Tanzania.

The processing plant will include a two stage crushing circuit, single stage rod mill and flotation circuit.

Graphite concentrate will be trucked to the port of Dar es Salaam though future studies will determine potential of using the Ifakara rail siding located 120 kilometres to the north.

Epanko will utilise diesel generated power for the first 2 years of production whilst the Rural Energy Agency of Tanzania constructs a new substation at Ifakara.

During the second year of production, the company will construct a 33kV power line from the Ifakara substation to Epanko. Power costs will then be reduced from US$0.288 per kilowatt hour to US$0.09 per kilowatt hour.

Graphite Pricing

That Epanko has very large size flake and high carbon grades is an advantage as there is at present a shortage of this product in the graphite market.

The basket price for graphite product used in the BFS is US$1,446 per tonne of concentrate.

Pricing for premium quality large flake graphite is forecast to substantially increase due to a shortage of supply and an increase in demand. Demand for spherical graphite is also expected to increase significantly.

Offtake and Sales Agreements

Kibaran has offtake agreements covering three quarters of the initial Epanko production.

In December 2013, it signed a binding off-take and partnership agreement with a leading European graphite trader.

The trader guarantees the purchase of 10,000 tonnes of graphite concentrate per year from Kibaran, for an initial period of five years with the option to renew for a further five years.

This was followed by a Letter of Intent in October 2014 with German company ThyssenKrupp Metallurgical Products GmbH, a subsidiary of ThyssenKrupp, to develop an exclusive, long-term commercial agreement for the sale of Kibaran's natural flake graphite products.

The LOI was for the sale of a minimum of 20,000tpa of natural flake graphite in Russia, Korea and the EU 27 (including Turkey) for a 10 year period.

ThyssenKrupp will also assist the company obtain funding for developing graphite projects.

Analysis

Based on the US$1,446/t of graphite concentrate basket price used in the BFS and Life-of-mine project FOB cash operating costs forecast to be US$570/t concentrate, Kibaran Resources is poised to enjoy significant operating margins and profit at Epanko.

In addition, the projected annual EBITDA of US$33.6 million (A$45.7 million) and off take agreements will drive project funding offers for Kibaran.

The current market cap of $34M is perhaps the lowest capitalisation in its listed peer group.

There are still plenty of price catalysts ahead.

Share price catalysts

- Securing debt financing for Epanko;
- Commence Epanko construction;
- Finalise offtake;
- Secure strategic partners to develop graphite projects;
- Progress Merelani East Graphite Project; and
- Advance study into battery grade graphite.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.